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Is Canada a captive oil producer?

Jennifer Kwan

Is Canada a one-trick pony when it comes to its oil trade? Comments by one prominent U.S. analyst suggest people outside of this country might think so.

Ed Morse, the global head of commodities research at Citibank, says American oil can pretty much be a net exporter via Canadian oil because "Canadians can't export their oil anywhere other than to the U.S."

In a recent interview with CNBC to discuss more broadly his commodity outlook for 2013, Morse said the U.S. on its own is "unlikely to become a net exporter." He went on to say: "but between the U.S. and Canada, we will be that exporter. And I say between ourselves and Canada because the Canadians can't export their oil anywhere other than to the U.S. and their production is going up steadily every year."

He went on to add: "They [Canada] have to only export it to the U.S. Their pipeline politics are worse than ours so they can't build one to either the west coast or the east coast."

At the same time expectations of a U.S. oil boom threatens to dampen growth prospects of Canada's oil exporters.

The comments come as Ottawa is pushing hard to diversify the country's energy markets. Canadian producers rely heavily on the U.S. market, sending nearly all of their oil exports south. It is the largest supplier of foreign oil to the U.S., snapping up a 28 per cent share of U.S. foreign-oil imports in the January-August period, according to data released on Wednesday by the U.S. Energy Information Administration.

But shaking things up is going to be a long, hard slog given reaction to ongoing attempts to expand or build pipelines, experts say.

So far proposals to build new pipelines to carry oil sands crude to the U.S. or to Asia, via British Columbia -- namely the Northern Gateway pipeline project -- have ignited political and environmental uproar. Uncertainty over the Keystone XL pipeline expansion proposal remains.

As well, Canada is currently reviewing CNOOC's $15.1-billion bid for Calgary-based Nexen, a proposal that has also faced intense scrutiny.

Despite the hurdles, some market observers remain optimistic. Doug Porter, deputy chief economist at BMO Capital Markets, said he doesn't believe Canada's oil is land-locked.

"I think it's a foregone conclusion that Canada has to always export to the U.S. The federal government and others are actively seeking options," he said.

"It is a challenge. There's no doubt about it, but I don't think it's insurmountable."